Lies, Damned Lies and Statistics
And the story of the day on CNBC this morning? A new study shows that drinking causes you to make more money.
Yah. They even had the genius who came to this conclusion on for his free 2 minutes of national exposure.
Now here’s what the study actually showed: people who drink regularly are also people who, on average, make more money than people who don’t drink. That’s correlation. Not causation!!!
Michelle Caruso-Cabrera, in an astute question, asked the guy whether perhaps the folks who went out and drank more had a better opportunity to network, and therefore increase their chances of success. Now that’s warmer, but still a little off target. Nevertheless, it seemed to catch him off guard. He came prepared to tell you just how much you need to drink so that you can be 14% richer. Drink this much, but not more than this. Dufus.
To draw the conclusion that drinking caused them to make more money would be like concluding that having a nice car causes someone to be richer. At best, it’s the opposite. Maybe having money causes people to drink more and get nicer cars. But more likely, it’s that these things just “go together.” Drinking doesn’t make you richer… but damned I wish it did.
The larger lesson? Remember how quick people (and especially the media) are to declare that this caused that. Be especially suspicious when they attribute a market move to some news. Don’t fall for it. As often as not, the move is a fakeout. Trade the chart, grasshoppa, trade the chart.